Pakistan Energy Crisis and Its Solution

Written by Maryam Ibrahim and Izza Ikram 6:01 pm Articles, Current Affairs, Pakistan, Published Content

Pakistan’s Energy Crisis and Its Solution

The rise in global oil prices, devaluation of the Pakistani rupee, and the domestic political and economic crisis in Pakistan are propelling the state towards becoming energy insecure. Maryam Ibrahim and Izza Ikram note that Pakistan has become heavily dependent upon energy exports. However, it still needs to find alternatives if it wants to overcome its energy insecurity and meet its domestic energy demand. If left unchecked, the current energy crisis will devastate the already struggling economy of Pakistan.
About the Author(s)
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Maryam Ibrahim has recently graduated from Lahore College for Women University with a bachelor's in international relations. Her sphere of interest includes the digitalization of international relations, specifically digital diplomacy.

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Izza Ikram is currently pursuing her bachelor’s degree in governance and public policy from National Defence University, Islamabad. She talks about public policy, climate change, and entrepreneurship.

Energy Security

The life and processes that take place across the whole world depend on energy. It’s similar to how the Earth may be powered. Since many production and consumption activities need energy as their primary input, it is highly important for the growth and economic development of a country in its growing stage. According to authors like Barney and Franzi, energy accounts for less than one-tenth of production costs while driving nearly half of industrial development in the modern economy. However, where there is energy, there is also a crisis.

What is it that affects everybody’s life yet cannot be touched directly? It’s natural gas. It heats our homes and drives our economy. And when there is a depletion, it has a kind of worldwide butterfly effect. The energy crisis is the shortfall or the interruption to the provision of energy supplies. It can be surprising for you to know that developed countries like China and Japan are also energy insecure. Yes, the 2nd largest and the 3rd largest economies of the world, respectively, are not secure as far as their energy needs and production are concerned.

This is because energy insecurity is defined based on whether a country is self-producing the energy for its requirements, whether it imports the energy to meet its requirements, or whether it is an exporter of the energy to other countries. Along these lines, energy security for a self-producing country can be defined as having available, accessible, and affordable energy at all times.

Similarly, if it is an exporter, then the country’s energy security depends on its ability to keep the supply-demand high and global energy resources under its control. And if it is an importer, then it must keep the energy prices and global energy markets under its influence as well as strive to keep its balance of payments positive.

Pakistan’s Energy Crisis

As of right now, the world is facing a shortage of energy and it has sent shock waves from Europe to Asia. And Pakistan is no exception. The energy industry in Pakistan is in crisis, due to a lack of energy output to keep up with the country’s rising demand during the past few decades. Pakistan is now reliant on imported energy resources like gas and oil.

The Asian Development Bank published a white paper in 2019 claiming that Pakistan is an energy insecure country. Besides Pakistan, there are numerous countries worldwide including the developed ones that are also energy insecure. There are several examples of market growth followed by a downturn and severe contraction since the energy industry is, by nature, in a loop. But the current crises are different in several aspects.

The recent increase in energy costs has given us a glimpse into the future, where market disruptions might result if the transition to low-carbon energy sources is not adequately managed or stressed. According to Shazia Anwar Cheema, Pakistan might face an extremely challenging and disastrous winter as a result of the lack of long-term energy management strategies by policymakers.

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The crisis is likely to worsen due to the Middle Eastern countries, which serve as the major source of imports, being severely impacted by the strain that Europe is experiencing as a result of the fuel and gas shortfall. The current bleak situation shows that the power shortfall at the moment is about 7,500 megawatts which subsequently results in 10-18 hours of load-shedding. This means the current supply is about 1,800 megawatts and the required supply is 25,000-25,500MW. Furthermore, Pakistan’s energy cost doubled in the last 9 months; it now stands at 15 billion USD.

Energy Profile of Pakistan

GOP, a.k.a. the Government of Pakistan, has unveiled a number of initiatives to facilitate the public’s access to energy, spur economic expansion, and find a solution to the energy issue. The initiatives include:

  • The National Power Policy 2013

The policy aimed to develop a power production, transmission, and distribution system that was effective and could fulfill the requirements of the populace while boosting the economy of the nation in a cost-effective and sustainable way.

  • Power Generation Policy 2015

The fundamental goal of the policy was to have enough cheapest available power production capacity while emphasizing the use of domestic resources, enabling all parties engaged in the trade, and protecting the environment.

  • Alternative and Renewable Energy Policy 2019

The major objective of the 2019 policy was to encourage and support the nation’s development of renewable resources.

To satisfy the nation’s needs, Pakistan produces a very small fraction of its total oil output. The production of domestic oil is restricted by technical, budgetary, and technological limitations. According to the most recent figures, the cost of oil imports surged from July through April of FY2022 from US$8.69 billion to US$17.03 billion, a 95.9% rise.

Oil is becoming more costly due to rising global oil prices and the severe devaluation of the Pakistani rupee, which is putting pressure on the country’s external sector and worsening its trade imbalance. Similarly, between July and April of FY2022, imports of LNG (liquefied natural gas) increased by 82.90% in value, while imports of liquefied petroleum gas (LPG) increased by 39.86%.

Pakistan is also using nuclear technology to produce electricity, and its share is rapidly growing. During the period of July–March FY2022, the gross capacity of nuclear power plants rose by 39% to 3,530 MW, delivering 12,885 million units of energy to the national grid.

If we see the consumption of electricity by different sectors throughout Pakistan, it is divided into various areas like domestic, commercial, industry, etc.

Units Sold (GWh)HouseholdCommercialIndustryAgricultureOthersTotal
FY2020-21
(July-March)
41,5086,24622,2807,5587,00884,600
FY2021-22
(July-March)
42,0556,64825,1608,1517,34789,361
Electricity consumption per sector

Reasons for the Looming Energy Crisis in Pakistan

The conflict between Ukraine and Russia has caused fuel prices to soar, endangering the supply chain and making it challenging for Pakistan to support the effective operation of its power plant. In order to take advantage of the profitable European markets, LNG companies have broken their agreements with Pakistan. Long-term LNG suppliers canceled several shipments scheduled for delivery over the last few months, further tightening supplies, which has directly resulted in complications for Pakistan. Pakistan is currently being forced to buy pricey LNG.

The ever-changing leadership and political turmoil and their unwillingness to address the situation and create a solution further aggravated the situation. Governments, political parties, and other interest groups continue to interfere with business decisions like employing and disconnecting default customers. In the meantime, the utility firms disavow all liability and accuse the management authorities of wrongdoing.

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There is an absence of coordination that prevents the implementation of any kind of comprehensive or integrated energy policy that may support Pakistan’s struggling economy and energy industry. Moreover, at a staggering 2.5 trillion Pakistani rupees, the circular debt is 10% more than it was in the previous fiscal year. By 2025, it is anticipated to reach 4 trillion Pakistani rupees, according to studies.

Reportedly, Rs. 1.5 trillion is owed by Sui Southern Gas Company Ltd (SSGCL) and Sui Northern Gas Pipelines Ltd. (SNGPL) to the Oil & Gas Development Company Ltd. (OGDCL) and Pakistan Petroleum Ltd. (PPL)—the mainstay of oil and gas exploration and production in Pakistan. This low-cost domestic energy source costs less than half as much as imported LNG, which Pakistan is using more of.

Due to the severe financial load this is putting on our meager foreign exchange reserves, OGDCL, and PPL are unable to expand into new markets since their revenue is caught in a vicious circle of debt. The lack of new investment in exploratory initiatives in the aftermath of declining oil and gas reserves is concerning and does not bode well for the nation.

Apart from the aforementioned reasons, other contributing factors include:

  • Decreasing gas supply and dependence on oil
  • Unrealistic power tariffs (low investments)
  • Low payment recovery
  • Inefficient revenue collection
  • Overpopulation, over usage

Impact of Energy Crisis on Pakistan

The industrial sector has also been severely damaged by the energy crisis. The manufacturing processes of several major and small-scale industries have been stifled by it. Due to the continuous energy constraint, the supply of gas and electricity to the industry was shut off. The South Asian country is experiencing a severe economic crisis, with energy imports being hampered by rampant inflation, a depreciating rupee, and shrinking foreign exchange reserves.

Textiles are the industry most impacted. According to government statistics, the home sector’s demand for energy has increased this season as a result of the heatwave, resulting in a shortage of almost 7,000 megawatts—or one-fifth of Pakistan’s generation capacity—on several days this month.

Pakistan’s important textile sector, which sells everything from denim to bed linen to markets in the US and Europe and makes up 60% of the nation’s exports, has been negatively impacted by the electricity deficit. According to Qasim Malik, vice president of the Chamber of Commerce in Sialkot, “the textile sector is in a situation of emergency.

What’s the Way Forward?

Pakistan, like China and Japan, also generates its power from imported fossil fuels out of which 48% is natural gas and 33% is oil. Now the question is, what is the solution to the energy crisis in Pakistan? What measures shall Pakistan take as a result of which it could become an energy-secure country? All over the world, especially in Europe, there is a clean energy revolution in full swing.

A massive wave of transformation into alternative and renewable energy from conventional energy production methods by the year 2030 is underway. The national policies have been approved and now implementation has started. Denmark is one of the unique countries that have taken itself to a highly ambitious target of shifting to 100% renewable energy resources by the year 2050.

So, in these fast-changing global energy trends, there are numerous opportunities for Pakistan to find a solution to its energy crisis. Following are the recommendations for adopting practical ways toward renewable energy in Pakistan.

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Research and Development

First of all, like other states, Pakistan needs to impose proper rules and regulations regarding the operating hours of industries. Our think tanks and research centers should publish research articles and policy papers that are Pakistan-centric containing “robust implementation mechanisms” considering the local challenges. Pakistan needs to combine all the energy-related institutions’ needs to under a single ministry, which will create efficiency in the dysfunctional energy sector and the whole sector will be streamlined.

Entrepreneurial Solutions

For Pakistan’s energy sector to be supported, it requires reliable funding and tax reforms. Then Pakistani entrepreneurs have a golden chance to come up with clever ideas to tackle the energy insecurity problem of Pakistan. They should mobilize land, labor, and capital based on the research by policy experts to invest in the manufacturing of green technologies that will be used locally as well as internationally.

The Government of Pakistan is soon coming up with a National Innovation Fund of Rs. 100 Billion according to unofficial sources of the Planning Commission of Pakistan. The Innovation Fund will aim to provide financial subsistence to innovative entrepreneurial ideas that can contribute to the economic improvement of Pakistan. So, young graduates and businesses have a great opportunity to create and pitch for green technology. They must come up with unique, efficient, and cost-effective ideas for such a remarkable opportunity.

Investing in Renewable Energy Industry

Similarly, it is a golden chance for local and overseas investors as well to invest in Pakistan’s Renewable Energy Program for which the government of Pakistan has given an Alternative and Renewable Energy Policy in 2019. The document is the updated version of the RE Policy for Development of Power Generation 2006. Moreover, importing clean coal, which is frequently less expensive than imported oil and gas, will allow Pakistan to first diversify its energy mix.

To reduce its dependency on conventional energy sources, Pakistan needs to decrease the demand for the grid station. It can do so by converting small-scale companies to solar energy and making them self-sufficient. Cattle farming needs to be locomoted across the country. In order to reduce their reliance on the national grid, other sources like the use of windmills have to be taken into account.

Public-Private Partnership

The public sector of Pakistan must make renewable energy a priority. The Government of Pakistan should collaborate with the countries like China that are technologically advanced and use this as an opportunity to improve bilateral relationships with them. Along with this, the government must subsidize the renewable energy industry and promote public-private cooperation to bring Pakistan out of the energy crisis.

Conclusion

The world is changing rapidly. Every process is being automated to save time and simultaneously speed up the production mechanisms. Without energy security, keeping up with the world will not be possible. If we strive to become competent and develop Pakistan as a modern country, we must timely adopt renewable energy methods to supplement our energy needs.

Due to the dynamics of the global economy, it may seem that in the near future, Pakistan will not experience a drop in the energy issue. However, it is the responsibility of the political leaders and the stakeholders of Pakistan to minimize this energy crisis and find a solution to it. It’s important to keep in mind that being optimistic will help you manage any degree of crisis. We all should do what’s in our control to strengthen our country on all fronts.


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